Investing for a second income typically means investing in dividend stocks. However, most will be aware that many UK stocks have performed quite well in the last two years. And the market’s pushing all-time highs.
This can mean investors need to work harder to find high-yielding and well-valued dividend stocks. Here are two I believe are overlooked — partially because of their size — and could contribute to a well-rounded second income portfolio.
Card Factory
Card Factory (LSE:CARD) offers one of the most attractive dividend profiles in the UK retail sector, with forecasts pointing to rising payouts and strong coverage. Analysts expect the dividend per share to increase from 5.7p in 2026 to 6.3p in 2027 and 6.8p in 2028, equating to prospective dividend yields of 6%, 6.7%, and 7.2% at current price.
These dividends are well covered, with payout ratios remaining under 40%. In other words, the dividend cover is between two and three times adjusted earnings.
Meanwhile, the company’s price-to-earnings (P/E) ratio is forecast to fall from 6.2 times in 2026 to 5.6 times in 2027 and just 5.2 times in 2028. When compared with the wider UK retailer sector, this suggests the shares are undervalued given the steady earnings growth.
Net debt’s also expected to fall sharply, from £117m in 2026 to £78m in 2028. However, it’s important to note that the current figure is around 33% of the market-cap. That’s ok with me but may prove a little high for others.
So is Card Factory overlooked? Well, it operates in a mature market and any slowdown in consumer spending or cost inflation could pressure margins. It needs to continually innovate to outperform in a relatively slow-moving market.
Despite this, I believe Card Factory’s a strong candidate for a second income portfolio. It’s also a stock I’m considering.
Yü Group
Yü Group (LSE:YU), a specialist energy supplier to UK businesses, is another high-yield contender with compelling growth prospects. The dividend per share is forecast to rise from 83.6p in 2026 to 89.4p in 2027 and 94.3p in 2028, translating to yields of 4.7%, 5%, and 5.3% at current prices. These payouts are well supported by earnings, with the payout ratio steady at around one-third of profits.
Meanwhile, Yü Group’s earnings per share are projected to grow from 250p in 2026 to 266p in 2027, while the company’s net cash position is set to improve further, moving from £117m in 2026 to £165m in 2028. That’s more than half of the company’s market-cap… covered by cash.
The forward P/E ratio drops from 7.2 times in 2026 to 6.8 times in 2027, reflecting both earnings growth and a modest valuation. A key risk is the volatility of energy markets, which could impact margins and cash flow if wholesale prices spike or customer defaults rise. Still, I believe it’s a very attractive opportunity and recently opened a position.
A hypothetical portfolio
A diversified portfolio normally has more stocks in it than this. However, for illustration sake, £10,000 split equally between the two would deliver £534 this year. That would rise to £580 the year after. And then finally reaching £615 in the third year.
